Question

The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $82.80 on December 31, 20Y2.

Marshall Inc.

Comparative Retained Earnings Statement

For the Years Ended December 31, 20Y2 and 20Y1

1		20Y2	20Y1
2	Retained earnings, January 1	$3,716,000.00	$3,266,000.00
3	Net income	630,000.00	560,000.00
4	Total	$4,346,000.00	$3,826,000.00
5	Dividends:
6	On preferred stock	$10,000.00	$10,000.00
7	On common stock	100,000.00	100,000.00
8	Total dividends	$110,000.00	$110,000.00
9	Retained earnings, December 31	$4,236,000.00	$3,716,000.00

Marshall Inc.

Comparative Income Statement

For the Years Ended December 31, 20Y2 and 20Y1

1		20Y2	20Y1
2	Sales	$10,860,000.00	$10,000,000.00
3	Cost of goods sold	6,000,000.00	5,440,000.00
4	Gross profit	$4,860,000.00	$4,560,000.00
5	Selling expenses	$2,160,000.00	$2,000,000.00
6	Administrative expenses	1,627,500.00	1,500,000.00
7	Total operating expenses	$3,787,500.00	$3,500,000.00
8	Income from operations	$1,072,500.00	$1,060,000.00
9	Other revenue	99,500.00	20,000.00
10		$1,172,000.00	$1,080,000.00
11	Other expense (interest)	132,000.00	120,000.00
12	Income before income tax	$1,040,000.00	$960,000.00
13	Income tax expense	410,000.00	400,000.00
14	Net income	$630,000.00	$560,000.00

Marshall Inc.

Comparative Balance Sheet

December 31, 20Y2 and 20Y1

1		20Y2	20Y1
2	Assets
3	Current assets:
4	Cash	$1,050,000.00	$950,000.00
5	Marketable securities	301,000.00	420,000.00
6	Accounts receivable (net)	586,000.00	500,000.00
7	Inventories	410,000.00	380,000.00
8	Prepaid expenses	107,000.00	20,000.00
9	Total current assets	$2,454,000.00	$2,270,000.00
10	Long-term investments	800,000.00	800,000.00
11	Property, plant, and equipment (net)	5,750,000.00	5,184,000.00
12	Total assets	$9,004,000.00	$8,254,000.00
13	Liabilities
14	Current liabilities	$818,000.00	$788,000.00
15	Long-term liabilities:
16	Mortgage note payable, 6%,	$200,000.00	$0.00
17	Bonds payable, 4%,	3,000,000.00	3,000,000.00
18	Total long-term liabilities	$3,200,000.00	$3,000,000.00
19	Total liabilities	$4,018,000.00	$3,788,000.00
20	Stockholders’ Equity
21	Preferred 4% stock, $5 par	$250,000.00	$250,000.00
22	Common stock, $5 par	500,000.00	500,000.00
23	Retained earnings	4,236,000.00	3,716,000.00
24	Total stockholders’ equity	$4,986,000.00	$4,466,000.00
25	Total liabilities and stockholders’ equity	$9,004,000.00	$8,254,000.00

Determine the following measures for 20Y2 (round to one decimal place, including percentages, except for per-share amounts): Assume a 365-day year.

1.	Working capital
2.	Current ratio
3.	Quick ratio
4.	Accounts receivable turnover
5.	Number of days’ sales in receivables
6.	Inventory turnover
7.	Number of days’ sales in inventory
8.	Ratio of fixed assets to long-term liabilities
9.	Ratio of liabilities to stockholders’ equity
10.	Times interest earned
11.	Asset turnover
12.	Return on total assets
13.	Return on stockholders’ equity
14.	Return on common stockholders’ equity
15.	Earnings per share on common stock
16.	Price-earnings ratio
17.	Dividends per share of common stock
18.	Dividend yield

Answer 1

1.Working capital= current asset - current liabilities

Current asset=2,454,000

Current liabilities= 818,000

Working capital= 2,454,000- 818,000= 1,636,000

2.Current ratio= Current asset / current liabilities

Current asset=2,454,000

Current liabilities= 818,000

Current ratio= 2,454,000 / 818,000= 3

3. Quick ratio= Quick asset / current liabilities

Quick asset is the asset which can convert to cash easly not include inventory and prepaid

Quick asset= Current asset- inventory- prepaid exp

Current asset=2,454,000

inventory=410,000

prepaid expense= 107,000

Quick assets=2,454,000-410,000- 107,000= 1,937,000

Current liabilities= 818,000

Quick ratio= 1,937,000/ 818,000= 2.4

4. Accounts recievable turn over ratio= Net credit sales / Average recievables

Sales=10,860,000

Average Recievables= (begining recievables + ending recievables)/2

begining recievables=recievables at 31 dec 20Y1= 500,000

ending recievables=recievables at 31 dec 20Y2=586,000

Average accounts recievables= (500,000+ 586,000)/2=543,000

Accounts recievable turn over ratio= 10,860,000 / 543,000= 20 times

5.Number of days sales in recievables= Days in one year/ Accounts recievable turn over ratio

.Number of days sales in recievables= 365 / 20= 18.25 days

6.Inventory turnover ratio= cost of goods sold/ average inventory

Cost of goods sold= 6,000,000

Average inventory= (begining inventory+ ending inventory)/ 2

Begining inventory= Inventory at 31 dec 20Y1= 380,000

ending inventory= Inventory at 31 dec 20Y2= 410,000

Average inventory=(380,000+410,000)/2=395,000

.Inventory turnover ratio= 6,000,000/ 395,000= 15.2 times

7. number of days sales in inventory= days in one year/ .Inventory turnover ratio

number of days sales in inventory= 365 / 15.2=24.01 days

8.Ratio of fixed assets to long term liabilities= (Fixed assets / long term liabilities)

Fixed assets=total asset - current asset

Total asset=9,004,000

current assets= 2,454,000

Fixed assets= 9,004,000- 2,454,000=6,550,000

Long term liabilities=3,200,000

Ratio of fixed assets to long term liabilities= 6,550,000 / 3,200,000= 2.1

9.Ratio of liabilities to stockholders equity= (Total liablities / stockholders equity)*100

total liabilities= 4,018,000

stockholders equity=4,986,000

.Ratio of liabilities to stockholders equity= (4,018,000 / 4,986,000)*100= 0.81*100= 81%

10. Times interest earned= Earnings before interest and tax / interest

Earnings before interest and tax=1,172,000

interest= 132,000

Times interest earned= 1,172,000 / 132,000= 8.9 times

11. asset turnover ratio = sales / average total asset

Average total asset= (total assets at begining + total asset at end)/2

total asset at begining= assets at 31 dec 20Y1= 8,254,000

Total asset at year end= assets at 31 dec 20Y2=9,004,000

Average total asset= (8,254,000+ 9,004,000) /2= 8,629,000

sales= 10,860,000

asset turnover ratio = sales / average total assets= 10,860,000 / 8,629,000= 1.3

12.Return on total asset=( net income / average total asset)*100

net income= 630,000

Average total assets= 8,629,000 {see answer 11}

Return on total asset=( net income / average total asset)*100=(630,000 / 8,629,000)* 100= 7.3%

13. return on stockholders equity= (net income / average stock holders equity)* 100

net income= 630,000

average stock holders equity= Stockholders equity at begining +Stockholders equity at end)/2

Stockholders equity at begining =Stockholders equity at 31 dec 20Y1=4,466,000

Stockholders equity at end=Stockholders equity at 31 de 20Y2=4,986,000

average stock holders equity=(4,466,000 + 4,986,000)/2= 4,726,000

return on stockholders equity= (net income / average stock holders equity)*100= (630,000 /4,726,000)*100=13.3%

14.return on common stockholders equity= (income availble for common stockholders/ average common equity) 100

preffered dividents paid= 10,000

income availble for common stockholders= net income - preffered dividents=630,000-10,000= 620,000

average common equity= (begining common equity+ ending common equity)/2

begining common equity= common equity at 31 dec 20Y1= total equity at 31 dec 20Y1- prefered stock at 31 dec 20Y1=4,466,000-250,000=4,216,000

ending common equity= common equity at 31 dec 20Y2= total equity at 31 dec 20Y2- prefered stock at 31 dec 20Y2= 4,986,000- 250,000=4,736,000

average common equity=(4,216,000+=4,736,000)/2=4,476,000

.return on common stockholders equity= (income availble for common stockholders/ average common equity) 100

=(620,000 / 4,476,000) * 100= 13.9%

15. Earnings per share on common stock= Earnings available for common stockholders /Weighted average number of common stock

Earnings available for common stockholders= 620,000 { see answer 14}

there is no change in common stock account between 31 dec 20Y1 and 31 dec 20Y2

Common stock = 500,000

par value=5

Number of common stock= 500,000/ 5= 100,000

Earnings per share on common stock= 620,000 / 100,00= 6.2 per share

16.Price- earnings ratio=Market price per share / earnings per share

market price=82.8

earnings per share=6.2 per share {see answer 15}

Price- earnings ratio= 82.8 / 6.2= 13.4

17.Dividents per share of common stock = total dividents paid to common stockholders / number of common stocks

total dividents paid to common stockholders= 100,000

number of common stocks= 100,000 { see answer 15}

Dividents per share of common stock= 100,000 / 100,000=1 per share

18. divident yield=( Divident per common shares / current market price of stock)* 100

Divident per common shares= 1 per share{ see answer 17}

current market price of stock= 82.8

divident yield= (1/ 82.2) *100= 1.2%